Asymmetric Connectedness within Cryptocurrency Ecosystem: An asymmetric Power ARCH (APARCH) Approach

Jules Clément Mba, Magdaline Mbong Mai

Research output: Contribution to journalArticlepeer-review


The dynamics of a financial system depends on the interplay between its constituent institutions. These institutions constitute a network of information flow vital for the system. Financial system has experienced various crisis from local, regional to global scale, often starting from one point of failure before spreading to the whole system. It is important to identify which institution is giving or receiving the spillover to help in well-preparedness for future crisis. This is achieved by assessing the connectedness among the players in the financial system through the Conditional Value-at-Risk (CoVaR) systemic risk measure. This paper investigates the connectedness in two markets, namely, the cryptocurrency market and the global market, using APARCH (1,1)-DCC (1,1) and C-vine copula framework. Cryptocurrency market consists of ten selected major cryptocurrencies by market capitalization while the global market is a combination of 7 major world indices and 3 major cryptocurrencies. While the Asymmetric Power ARCH (APARCH) model captures the asymmetric responses of volatility to positive and negative ‘news shocks’, the Dynamic Conditional Correlation (DCC) captures cross-correlation dynamics and spillover of volatility among the assets. To model the dependence structure among assets, the C-vine copula is flexible enough to select from a cascade of bivariate copulas based on AIC criteria. This constitutes good ingredients for the computation of a variance-covariance matrix which properly reflects the characteristics of the data and represents key input for CoVaR. The daily data ranges from 10 November 2017 to 07 April 2022. The highly volatile aspect of the cryptocurrency market is reflected through CoVaR values with those from crypto-market doubled of those of indices from the global market. This illustrates that building a portfolio of only cryptoassets is twice riskier than building mixed portfolio (equities and crypto-assets). It appears that Bitcoin and Ethereum are top contributors to the cryptocurrency market risk. But on the global market, their impacts are quite negligible as compared to that of world indices such S& P 500, CAC 40, FTSE 100, DJI, etc. This exhibits the diversification benefits which crypto-assets may provide to stocks and equities investors. Results from this study may assist investors in improving their portfolio selection strategies. It may also assist regulatory authorities to perceive the global risk involved with crypto-market and to implement effective policy accordingly.

Original languageEnglish
Pages (from-to)18-30
Number of pages13
JournalAfrican Finance Journal
Issue number2
Publication statusPublished - 2023


  • CoVaR
  • Cryptocurrency
  • DCC
  • SES
  • Systemic risk

ASJC Scopus subject areas

  • Finance


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